As Colorado PERA prepares to embark on a community outreach tour, the following are some frequently asked questions about the purpose of the tour.
Why is PERA doing the tour?
The amount of time it will take PERA to reach full funding, called the amortization period, has increased. It’s important that the PERA Board of Trustees take steps to reduce the risk of having a long amortization period. The tour will allow PERA to educate members, retirees, employers, and other stakeholders about the current funded status and begin a dialog about how to improve it.
What caused the increase in the amortization period?
A key function of the PERA Board is to regularly review the assumptions on which PERA’s financial health is evaluated. They look at PERA’s own experience and compare it to prior predictions, and when necessary, adjust assumptions going forward. For example, the Board reviews the accuracy of life expectancy predictions, which reflect how long PERA may be expected to pay a benefit to each retiree in the future. One of the assumptions that was changed in November 2016 was the adoption of new mortality tables. The good news is that we’re living longer. But that also means that PERA must plan to pay benefits longer to correspond with longer life spans.
What about lowering the rate of return assumption?
The decision to reduce the long-term investment rate of return assumption also increased PERA’s amortization period. As with the change to mortality tables, it’s not a decision that the Board makes lightly. They undertake a thorough process that involves reviewing past performance and receiving expert opinions about future economic conditions. Ultimately, the Board voted to reduce the rate of return from 7.5 percent to 7.25 percent to better reflect the market environment.
Is PERA running out of money?
No, under the current economic assumptions PERA will still reach full funding, but having a longer time frame to reach full funding means additional risk. PERA is not expected to run out of money and can pay all benefits in perpetuity. The current situation is very different than when PERA toured in state in 2009. Immediately following the Great Recession and before Senate Bill 10-001 was implemented, PERA was expected to run out of money in a few decades.
Why are we talking about this now?
PERA has had to adapt to changing conditions in the past. Most notably in the Great Recession in 2008 when benefits were rolled back. While the current condition is not as severe, we must be proactive.